With a adequately funded balance sheet, low leverage and strong OCF positions, Reliance Industries is a buy, said Jefferies reiterating target price 3,100 as the base case scenario.
The brokerage said the recent fall in Reliance Industries share price makes it attractive. In January, the global brokerage firm said it sees potential RIL aims to increase revenue from O2C 3,100,
“RIL stock has corrected 14% since December and trades at 18x FWD PE – a discount to its LT average. This is attractive considering the 18% earnings growth in FY24E. In our view, the current stock price imposes nil value on RIL’s renewables business. We expect investors to provide meaningful value to renewable energy when first revenue is realized in calendar year 24. Buy with PT Repeat 3,100,” said Jefferies in a recent report.
For the base case scenario, the brokerage estimates 24% EBITDA CAGR in Jio over FY22-25E, helping around 473m customers 206 ARPU; 35% EBITDA CAGR in Retail over FY22-25E; 11% EBITDA CAGR in Refining over FY22-25E; 4% EBITDA CAGR in Paytm over FY22-25E.
Jefferies values RIL’s renewable business at $28 billion and notes that the current market value of the stock 2,320.60, as of the end of February 13, meaning a “low value to the business”.
“RIL’s O2C business (Refining and Petchem) generates an average of US$8bn of annual EBITDA. It can use much of this cash to build out its green energy business—a key competitive advantage in our view,” the report said.
The key points that Jefferies listed in favor of the oil-to-retail conglomerate are –
India’s renewable economy competitive, government keen to capitalize
– The renewable ecosystem is capital intensive and hence private players will be at the forefront of India’s renewable transformation over the next decade
Cash flow from O2C to build renewable products business
RIL’s renewable business is worth $28 billion.
In the upside case, Reliance Industries share price could go up by close to 50% 3,500, but in a downside scenario, the stock could fall around 7% 2,200, as per a Jefferies report.
Stock closed on Feb 13 2,322.75, down 13.6, or 0.58%.
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